Steep hospital markups strike blow to uninsured

July 27--The bill totaled more than $21,000, and David Rigsby's creditors were threatening to heap on another $9,000 if he didn't pay up.

Presbyterian Española Hospital had charged the sum for a colonoscopy and hernia repair in 2005. Both procedures took about an hour. Rigsby, a 66-year-old former volunteer emergency medical technician, didn't even spend the night in the hospital.

Rigsby paid $3,000 upfront and, because he was uninsured, the hospital granted him a $2,317 discount as a "self-pay" patient.

Still, the cost seemed awfully high to Rigsby, so he began researching how hospitals set prices and whether the bill that haunted him was correct. Rigsby's quest led him to an assortment of advocacy groups that steered him to a secret buried deep in patients' billing records -- the cost basis for his bill.

What Rigsby discovered was that the cost the hospital charges the federal government for the same procedures under Medicare was exponentially lower than what it charged him. By law, the Medicare rate of reimbursement is the amount the government estimates is the actual cost to a hospital for providing a service, including facility costs, equipment and the medical personnel necessary to perform it.

In Rigsby's case, the total cost was $2,406.59 -- nearly 10 times lower than he had been billed, according to documents Rigsby shared with The New Mexican.

"It really is insane," said Rigsby, who ultimately paid $9,630.60 of the five-figure bill, including $2,431 to the hospital's collection agency, before the hospital stopped pursuing the debt.

Rigsby caught on early to a trend that, thanks to provisions in the Affordable Care Act, has become abundantly apparent: Hospitals everywhere set medical prices that far exceed what Medicare estimates to be the cost of preforming those services.

"You're shining a light on something that has been in a black box for decades," said Dr. Neel Shah, assistant professor at Harvard Medical School and co-founder of the nonprofit Costs of Care, which advocates for lower costs and other reforms in the nation's health care system. "What you're seeing in New Mexico is representative of what's going on nationally."

Wildly varying costs

According to an analysis by The New Mexican of hospital pricing data from 2012, released by the federal Centers for Medicare and Medicaid Services, hospitals in the state set prices for outpatients 547 percent higher on average than the Medicare rate of reimbursement. Eastern New Mexico Medical Center in Roswell, at nearly 900 percent, along with Alta Vista Regional Hospital in Las Vegas, N.M., and Lea Regional Medical Center in Hobbs, both exceeding 800 percent, had the highest markups for outpatients in the state.

Hospital costs for inpatient services averaged a 223 percent rate of inflation over the Medicare rate, the analysis showed. Eastern New Mexico Medical Center (477 percent), Carlsbad Medical Center (431 percent) and Lea Regional Medical Center in Hobbs (431 percent) had the highest inpatient charges.

The Centers for Medicare and Medicaid Services' data showed wildly varying prices from one hospital to the next for the same diagnosis or procedure. For instance, someone diagnosed with a blood infection and hospitalized at Holy Cross Hospital in Taos could expect a bill of $19,555, a markup of less than $4,000 compared with the Medicare reimbursement rate of $15,695. But for the same diagnosis at Alta Vista Regional Hospital in Las Vegas, the price was $72,345, exceeding the Medicare reimbursement rate of $11,836 by more than $60,000. At Christus St. Vincent Regional Medical Center in Santa Fe, which ranks in the middle of the pricing pack for a diagnosis of the same type of blood infection, the price was $34,456, and the Medicare rate was $14,748.

Hip replacement surgery at Gerald Champion Regional Medical Center in Alamogordo carries a price of $31,453, more than twice the Medicare rate of $14,928. But it's still considerably lower than the same procedure at Carlsbad Medical Center, where the price is $86,803 -- a markup of more than $75,000 above the $11,619Medicare rate.

An outpatient who undergoes cardiac imaging, such as an echocardiogram, at Roosevelt General Hospital in Portales could expect a bill of $1,121 for the procedure that Medicare says costs $627 to perform, but at Lea Regional Medical Center, where Medicare estimates the cost of the service at $674, the price tag is $7,935, according to the Centers for Medicare and Medicaid Services.

The data show the differences be-tween the rate Medicare pays and what hospitals reported as their prices for treating the 100 most frequent diagnoses for inpatients and the 100 most common services provided to outpatients.

For-profit prices highest

The data used in The New Mexican's cost analysis marks only the second time that bulk hospital pricing data has been publicly released by the federal agency, the first being 2011 data released last year. Before that, only the most diligent consumers, Rigsby among them, bothered to mine deep enough into their medical invoices to know how starkly their bills differed from the federal designation for the cost of care.

Using the latest data, The New Mexican's analysis measured how much hospitals charged relative to what they collect for services to Medicare patients -- including patients' out-of-pocket expenses such as copays and deductibles. The analysis used the collective average of all 100 inpatient and 100 outpatient categories measured in the data to derive the price ratings. Not every New Mexico hospital was included in the data. Some were excluded for the low number of procedures they performed or because of their specialized focus.

The analysis found that for-profit hospitals tend to charge more than nonprofit hospitals. And government-run facilities tend to charge less than the nonprofits.

For instance, at Northern Navajo Medical Center in Shiprock, which is operated by the federal Indian Health Services, the price to treat a patient hospitalized for nutrional deficiencies is $7,649, or 57 percent more than the Medicare rate of $4,871. At nonprofit Christus St. Vincent in Santa Fe, the price was $11,180 compared to the Medicare rate of $4,872. Lea Regional Medical Center, a for-profit hospital in Hobbs, charges $30,236 for the service that Medicare estimates costs $4,442.

Investor-owned, for-profit companies own nine of New Mexico's 10 highest priced hospitals for inpatients and 12 of the 13 most expensive hospitals for outpatient services.

Community Health Systems Inc., a for-profit company based in Tennessee, owns the three priciest inpatient facilities and the three most expensive hospitals for outpatients. The company reported nearly $27 billion in assets in its latest quarterly filing with the Securities and Exchange Commission. Patients' outstanding bills represented $3.1 billion. During the three-month period that ended March 31, Community Health Systems reported $109 million in profits, even as it paid down debt on hospitals and private medical practices it had acquired recently.

A spokeswoman for Carlsbad Medical Center, one of the hospitals owned by Community Health Systems, blamed its high markup on Medicare and Medicaid rates that she said are too low, forcing the hospital to make up the difference in its nongovernment rates.

Not every hospital in the state is faring as well, according to Jeff Dye, president of the New Mexico Hospital Association. Amid a reduction in government subsidies for care to indigent patients that took effect this year, he told lawmakers at a hearing earlier this year that more than a half-dozen New Mexico hospitals are in jeopardy of closing down for financial reasons.

Christus St. Vincent, Santa Fe's only general hospital, came in below the state average for cost relative to Medicare rates for both inpatient diagnoses and outpatient services. St. Vincent ranked as the sixth most affordable hospital in the state among 24 that were considered in the analysis of outpatient costs, with prices averaging about 380 percent of the Medicare rates. For inpatient services, St. Vincent ranked 12th in affordability among 30 hospitals. The Santa Fe hospital's average markup relative to Medicare rates for inpatients was 122 percent.

"We're not the highest in the market, we're not the lowest," said Bob Moon, chief financial officer at St. Vincent.

The hospital employs a third-party contractor to develop its "chargemaster," the list of sticker prices for services.

"They help us basically look at the Medicare database and what our competitors' prices look like, and we try to price accordingly," Moon said.

When hospitals -- including St. Vincent -- are asked how they establish pricing, the simple answer is, "It's complicated."

Pricing is affected by variables such as the mix of commercially insured, government-subsidized and uninsured patients, the types of services a hospital provides and associated infrastructure, such as trauma care centers and helipads for medical evacuation flights.

"You really start with the infrastructure of the entity and the type of services that are provided," said Bruce Tassin, St. Vincent CEO. He said it costs $800,000 a day to operate the hospital, and pricing must be structured to accommodate those expenses.

"The local cost of infrastructure, the local cost of staffing, the staffing mix -- all of those things go into what the local cost of operating a facility is," Dye said. "And of course, that translates into what the hospital would charge for individual services they deliver. What goes in determines what comes out."

'Going overboard' to offset losses?

Hospitals contacted by The New Mexican emphasized that few of their patients actually pay the sticker price for their services.

Patients with commercial insurance pay the rates the hospitals have negotiated with their insurers, generally at much lower costs than the top-end prices reflected in the Centers for Medicare and Medicaid Services data. And patients with government-sponsored insurance, such as Medicare and Medicaid, remit copay that supplements the rates set by the federal government based on its best estimates of what the services cost to provide -- including overhead such as facilities and staffing -- in a given part of the country.

Complaints that Medicare and Medicaid pay rates less than the actual cost of service were a consistent refrain from the hospitals and the New Mexico Hospital Association, and that too, affects private-pay patients.

"The prices are set to accommodate that some patients -- Medicare and Medicaid -- don't pay full freight for services," Dye said.

But cost control advocates such as Harvard's Shah contend the rates hospitals charge vastly outstrip what amounts to a modest loss on Medicare and Medicaid patients.

"That's exactly where their argument breaks down," Shah said. "Even if Medicare is underpaying you, they're not just making up the difference. They're going way overboard."

"On average, the Medicare rate covers about 95 percent of the cost of care," said Dr. Michael Richards, executive physician-in-chief at The University of New Mexico Health System, citing a report to Congress by the Medicare Payment Advisory Commission, which said that in 2012, hospitals nationally received Medicare reimbursement rates 5.4 percent lower than the actual cost of care.

The reasons hospitals might set their chargemaster rates much higher than the government-prescribed rates are numerous, and not the least among them being profit margin, Richards said.

"There may be lots of reasons why an organization may do this," he said. "In our case, we haven't artificially inflated our prices."

In The New Mexican's analysis, UMN's University Hospital rates as the second most affordable hospital in the state for outpatients, behind only Holy Cross Hospital in Taos, and eighth most affordable for inpatients.

Those who do pay the sticker price most often are uninsured, like Rigsby, Shah said.

"That's the tragedy of all this," Shah said. "The people that pay the sticker price are the people least able to afford it, without insurance."

Insurance no shield from rate hikes

Even patients with commercial insurance aren't shielded from the affects of hospitals' sticker prices, Richards said. Hospitals generally approach the rates they negotiate with insurance companies, either as a percentage of the top-end prices reflected on their chargemaster cost list, or as a multiplier of what Medicare or Medicaid pay for a service or diagnosis, he explained.

Those negotiations set rates for the costs insurers will pay to hospitals, and the costs that insurers won't cover, which generally become out-of-pocket expenses that insured patients must pay toward a deductible.

"A couple thousand dollars is a lot to take on the chin, no matter who you are," Shah said.

Dye acknowledged that hospitals' negotiated rates with insurers historically have represented a percentage of the chargemaster rate, but he said that practice is becoming less common. Instead, he said, hospitals are increasingly agreeing to bundled pay packages from insurers that carry some financial risk for hospitals because reimbursements are tied to successful outcomes and not the volume of services a hospital provides.

Patients who go outside their insurance networks for care also could find themselves paying the full rate.

More than 24 percent of New Mexico residents were uninsured in 2012, according to the state Department of Health, exposing nearly 1 in 4 of them to the full prices for medical services listed in the federal data. The launch of the Affordable Care Act last fall and New Mexico's expansion of Medicaid eligibility added nearly 200,000 New Mexicans to the ranks of the insured, but the most reliable estimates from organizations that track insurance enrollment nationally, such as the Kaiser Family Foundation, still show that about 1 in 5 New Mexicans -- approximately 400,000 of the state's nearly 2.1 million residents -- are without insurance.

The release of hospital pricing data was mandated by the Affordable Care Act, ostensibly to help consumers comparison-shop for health care. But the data are difficult to analyze, and for most -- especially those with commercial insurance -- not useful for comparisons.

"When charges have little correlation with what price will actually be paid, it's difficult to do any comparison," UNM's Richards said.

But undeniably, consumers have an appetite for menu-style price comparisons for health care services, Shah said. He pointed to the $3 billion debut of Castlight Health on the stock market earlier this year. Its popularity was driven by the health care price transparency application it had developed, Castlight Mobile. On their smartphones, users can compare costs and quality care measures for nearby medical providers in a user-friendly app with easy-to-understand graphics.

"When people are dumping all this Medicare data and doing all these things to make pricing more transparent, they're trying to empower patients the way they would in any other industry," Shah said.

But he is adamant that no amount of pricing transparency can fix price inflation in the American health care system. That, he said, is a problem that doctors and hospitals must fix.

"We want to get to a place where it's considered unethical to inflate patients' bills," Shah said. "If you walked outside in New Mexico and littered on the sidewalk, I'm sure you'd get some dirty looks. We want the same thing to happen when doctors and hospitals embrace practices that raise costs for patients."

Still haggling over bills

Since Rigsby's first run-in with an eye-popping invoice, another New Mexico hospital saddled him with a full-cost bill. He inherited a debt of nearly $10,000 for less than an hour of lifesaving measures performed at Presbyterian Hospital in Albuquerque on his wife, Linda Rigsby, when she died of a sudden brain aneurysm in 2008.

David and Linda Rigsby had been uninsured since the mid-1990s, when their commercial insurer dropped Linda's coverage following a costly psychiatric hospitalization. Enraged over his wife's abandonment by the insurance company, Rigsby canceled his coverage, too.

With both of the five-figure bills he has received during the past nine years, Rigsby has mounted scrappy objections on the basis that, as someone without insurance, he was subjected to much higher medical costs than someone with a commercial or government-sponsored health care plan would pay. When he confronted bill collectors seeking payment for his wife's treatment, he again asked them for a cost basis to determine the gap between the prices set by Medicare for services and the hospitals' prices. After that, he said, the bills stopped coming and his debt was forgiven.

"They walked away," he said.

Today, Rigsby finds himself haggling over yet another medical bill for an emergency room visit for an irregular heartbeat earlier this year at Christus St. Vincent Regional Medical Center. This time, he has the benefit of Medicare coverage, but he persists in writing letters to the hospital, asking more about how it formulates charges.

Rigsby, who lives along the Rio Grande in Embudo with his new wife, says he is not bitter. But he said he considers it a personal crusade to stand up against widespread billing practices he regards as unfair and irrationally high.

"Why am I interested? It's because I've been personally affected, and it got my goat," Rigsby said. "It touched me emotionally."

Contact Patrick Malone at 986-3017 or [email protected]. Follow him on Twitter @pmalonenm.

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